Real Consumer Confidence Returns

“Watch what they do, not what they say,” is one of my favorite expressions.

I don’t have a lot of time for sentiment polls – especially of the economic kind – as people are prone to give answers based on how questions are worded, are susceptible to mood swings based on what the markets were doing that day, and generally have been shown to be really bad at forecasting their own actions.

We know these things for a fact.

Better than the results of surveys or polls is the actual data showing what people are really doing – not what they want to project or what they think they might do.

And the data on that front indicates that they are growing in confidence. How do we know? Because the household deleveraging cycle is being replaced with a new borrowing cycle. This is being driven, undoubtedly, by the tightening labor market, the muted pace of layoff headlines, the improvement of our 401(k) balances and the stabilization of national home prices.

Here’s the Wall Street Journal this morning:

Americans ramped up their borrowing at the end of last year as their confidence improved, posting the largest increase in household debt since before the recession.

Household debt, which includes mortgages, credit cards, auto loans and student loans, jumped $241 billion, or 2.1%, between October and December to $11.52 trillion, new figures from the Federal Reserve Bank of New York showed Tuesday. That was the biggest quarterly rise since the third quarter of 2007, just before the recession began.

Mortgage balances, the biggest part of household debt, increased $16 billion in the fourth quarter of 2013 from a year earlier, ending a four-year streak of year-over-year declines. That was largely due to fewer bankruptcies and foreclosures. Credit-card balances rose by $4 billion from a year earlier. Auto-loan balances rose by $80 billion. Student-loan balances rose by $114 billion from the prior year.

All told, overall debt is up $180 billion from the fourth quarter of 2012, the first increase from year-ago levels since late 2008. U.S. household debt remains 9% below its peak of $12.7 trillion in the third quarter of 2008.

In studying history, you will find few examples of this kind of thing stopping on a dime. Once animal spirits begin to manifest themselves, they tend to stick around until things get out of hand.

This development is good news, don’t let anyone tell you otherwise – even if it portends a tighter Fed sooner than the consensus currently expects. That’s fine too.


Americans Ramp Up Borrowing (WSJ)



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